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New lender practices - Are they good for your borrower?

Many of you have probably seen this new lender practice but it is relatively new in our market area.

Mortgage lenders are now offering to pay the mortgage insurance for a buyer for the life of the loan.  The only condition is that the interest charged on the loan is higher.

Let's say your borrower borrows $150,000.  On a regular mortgage your borrower is charged 6% interest.  However, with mortgage insurance paid by the lender the lender raises the rate to 6½%.   Do the math on a 30 year loan and you will see the extra ½% rate costs your borrower an extra $17,559.45 over the 30 years.

Lets say the mortgage insurance would have cost your borrower say $45/month added to his/her monthly payment.  As we all know, after a borrower has established 20% equity through appreciate and paying down of the principal balance they can request a re-evaluation, pay for an appraisal, and opt out of paying mortgage insurance.

If the spread in rates is not large it is not a big issue in my book. However, look out for your buyer and if the spread between rates is too large then your borrower would be much better off paying his/her own mortgage insurance and opting out of paying the mortgage insurance a few years down the road.

Your borrowers will be happy you are looking out for them.

Native Idahoan and Boise Idaho Real Estate specialist serving Boise, Meridian Eagle, Nampa, Caldwell and the surrounding Treasure valley area of southwest Idaho. Specializing in residential, investment, land and commercial real estate. Search thousands of MLS listings at Boise Homes for sale and learn all about Idaho by visiting Search Idaho Homes

Comment balloon 8 commentsGeorge Tallabas • December 21 2007 11:06AM

Comments

HI George:

I would certainly not want my buyers signing up to pay all that extra money!  And since the cost of PMI is deductible until 2010 it would seen as though anyone buying now would be very close to meeting the equity standard for removal of the PMI within the next couple years and they would be getting an extra deduction, too!  Thanks for pointing out this program.  I haven't seen it around here yet, but anything is possible! 

Posted by Carol Smith (Casmi Photography) over 11 years ago
Carol - I am right with you my friend. It seems like we always have to be watching out for the latest system to come down the pike to see if it is good or not and this one has me very suspect.  Have an awesome week and holiday season my friend.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
George, I am not aware of anyone offering this to a buyer in New Hampshire.  However, I will do some checking after the holiday.  It is important for the buyer to be protected and know all the facts.  Thanks for the head up -- and happy holidays.
Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 11 years ago
Joan - If it hasn't hit there I am sure it will in the near future.  I found out at the closing table and was shocked to say the least.  From now on I am really going to counsel my buyers and make sure they are informed.  Have a blessed holiday season my friend.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
George, I haven't seen that in this market.  I can't see how the lender can afford to pay the PMI, except to increase the fees.  I'll do some checking after the holidays.  Thanks for the post.
Posted by Kay Van Kampen, RealtorĀ®, Springfield Mo Real Estate (RE/MAX Broker, RE/MAX) over 11 years ago
Kay - Thank you and just keep your eyes open my friend.  I hope you had a wonderful Christmas and I wish you well.
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago
George, I haven't run into this yet - but am glad you made me aware of it!  Hope you had a great Christmas!
Posted by Eva Armstrong, Environmental Visions (Environmental Visions) over 11 years ago
Eva - You are very welcome and have an awesome New Year my friend
Posted by George Tallabas, Idaho Real Estate (RE/MAX Advantage) over 11 years ago

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